carbonates

For Your Perusal: The Glory of Free Market Oil Supply

Your premise that removing production of OPEC and Russia leaves only oil produced by market-based oil producers is probably wrong. Most of the majors produce in Russia and OPEC countries. BP's net in Russia is close to 1 million bbl/day. Shell's net production in Nigeria is about 850,000 bbl/day. Oxy's current net production is at least 400,000 bbl/day in OPEC countries. Total was producing 535,000 bbl/day from OPEC and Russia for 2008. Exxon is not transparent about its production per country, but has major projects both in OPEC countries and Russia. Chevron still has a major stake in Venezuela which has quadupled its income over the past 4 years suggesting Chevron production is rising there. Likewise Chevron is growing production in Algeria. While the overall trend in liquids production numbers is falling for many majors, this graph may more correctly represent a shift away from production towards OPEC and Russian locations more than a decline in overall production of multi-nationals and independents. I suspect you have oversimplified this chart to the point it does not represent the true picture.

I will also point out that considering only liquids production can be misleading since gas production is rising in most parts of the world. Through fuel substitution as well as gas-to-liquids projects, gas is slowly replacing liquids and will likely continue that trend.

Book Review: Robert Hefner's 'The Grand Energy Transition'

Natural gas is currently suffering from being categorized along with oil by policy makers and consumers. The two fuels vary dramatically in supply, marketing, and consequences of consumption. We do have a hundred year supply of natural gas, even if consumption rises, due to changes in drilling technology and geologic paradigm shifts that are currently being adapted in the natural gas industry.

Currently natural gas is the only fuel that can be used to quickly supply electric power when demand rises unexpectedly. Wind power, solar, nuclear, hydroelectric, and even coal cannot do that as quickly as natural gas. Currently natural gas is the cheapest source of hydrogen. In effect, burning natural gas IS burning hydrogen as most of the energy comes from the 4 hydrogen bonds.

There is no reason that natural gas cannot be used to substitute for transportation fuel (gasoline and diesel), yet wind and solar cannot do that with any efficiency. I converted my vehicle to natural gas in 1974. Large fleets of buses and garbage trucks in my area have been converted for years.

The real problem for natural gas is that the current administration is throwing the baby out with the bath water, by limiting natural gas production and doing nothing to improve natural gas distribution systems. Currently the natural gas industry is facing higher taxes, serious restrictions on technology applications, revocation of Federal leases, increasing royalties and severance taxes at both federal and state levels, and a supply glut that is forcing most producers to stop drilling and cancel programs that would have been our supply several years from now. Boom and bust, while decried by Obama, seems to be the real result of his administrations policies for the natural gas industry. Maybe Al Gore (who was once a proponent of natural gas) needs to read this book so that maybe the Whitehouse will get the message.

Opportunities in the Oil Sector

I too am convinced the best place to be in the oil and gas sector is in the majors and internationals for the next few years. The political climate in the US is forcing most domestic independents to slow down or stop drilling, resulting in falling production and reserves for those companies. Currently Federal leases are being revoked in some areas, some states are planning to raise severance taxes, higher Federal royalties are being imposed on some leases in the Gulf of Mexico, and the Obama budget has some large hits for oil and gas in the form of lost tax deductions. All of this will tend to shrink domestic production. Add to that the current oversupply of the US gas market, and low prices that for many operators are approaching the cost of finding and development, and the US independents will be feeling pain for a year or more.

International operators (majors and independents) will actually benefit from the current US political climate, being able to operate outside of the US restrictions while supplying the US market. The primary result of the current policies that are being imposed is that the US will rely much more heavily on imports in the future.

I am not bullish on service companies like RIG. Right now the drilling and service companies are looking at a major downturn in work. While they have still got some work continuing from last years high priced market, as soon as those contracts end, they are likely to be laid down. Just about every oil and gas producer out there is dramatically reducing costs, and the first place they will look will be service companies.

Why "Drill, Baby, Drill!" Does Not Translate Into Effective National Energy Policy

Okay, Fearing, I'll take the bait. By your logic I should stop drilling in the US, as the US production is going into decline anyway. That's fine with me. I can take my skill set to Saudi Arabia and get paid more anyway. My quality of life will decline slightly, but my personal finances will be greatly improved by reductions in taxes and higher income. My work will be slightly easier, because I will not have to deal with any sort of environmental standards, and even fewer regulatory hurdles. You will still be paying my higher salary (but you will be receiving far less of my income in the form of taxation), so it makes little difference to me. I could have provided my services inside the US, creating high paying jobs and huge amounts of tax revenue in the US, but it seems you feel you would be better off to buy imported oil. By the way, the MMS is the second largest source of revenue to the Federal government behind income taxes. As US oil production declines, your tax rates will increase.

Likewise, I can shift my investment portfolio from US oil producers to foreign producers that will benefit from having a larger market share in the US. As US production goes into even higher declines, oil will no doubt go higher and I will continue to benefit in my portfolio. I can even start collecting my paycheck in Euros or Swiss francs!

Also inherent in your position is the shift away from environmentally responsible oil and gas production within a strongly regulated framework, to production in areas where there is no environmental regulation. Russia still considers plowing on-shore oil spills under with a tractor to be "spill remediation." Other countries I have worked in tolerate lakes covered with 12 inches of oil as the cost of doing business. Your attitude only supports this lack of responsibility and will hasten the decline of the worldwide environment.

Meanwhile, you seem to suggest the US stop using oil, or alternatively import more oil, as for some reason drilling seems to upset you. You would prefer to take the point of view that since we can't produce all of what we need, we should not even try.

I can easily change the way I live. It will not be beneficial to you however, but will be very beneficial to me. Can you change the way you live? Call me an idiot, but at least I have a positive suggestion on how to make the transition to renewable energy and alternative raw materials that will be needed to replace oil and gas. As is often repeated quietly in the oil industry "you can all go freeze in the dark" if you don't want my help. I'm not the cause of your digestive problems.

Why "Drill, Baby, Drill!" Does Not Translate Into Effective National Energy Policy

Yet another example of how your premise is so WRONG, North Dakota, which has also experienced new levels of drilling activity in the past couple of years, is setting new records of oil production (natural gas is NOT included in these numbers). North Dakota produced 5,324,274 bbls of oil for the month of July compared to the 4,985,773 bbls of oil produced a month earlier. These are all-time high levels for North Dakota, and the direct result of DRILLING. Proven reserves for North Dakota are on the upswing, showing that through effective modern exploration it IS possible to reverse long-term declines. Both new engineering technology and new geologic concepts made it possible to recover tremendous amounts of oil from the Bakken, which has been drilled through and ignored for decades. Many more examples exist, and the new wave of oil drilling is only beginning to be apparent to the investing community and even much of the oil industry. You know very little about what you are talking about.

EOG Resources, the principal operator of Parshall field, reported production of 854,119 bbls of oil from 53 wells in July. NONE of these wells existed two years ago.

Large percentages of these new record production levels in North Dakota are being produced from Federal leases. This is something you would have us stop leasing, since apparently 5 million barrels a month isn't enough to matter to you. At only $100 per barrel, that translates into $500 million dollars of revenue that went into the US economy; new wealth created by US oil companies, and money that was NOT part of the US trade deficit. That $500 million of revenue also may have provided as much as 12 1/2 percent of the gross revenue (the Federal royalty payment) to Federal tax coffers, effectively reducing the need to tax US taxpayers by millions of dollars (which would have been needed if we had bought imported oil instead.)

You really need to rethink your numbers.

Why "Drill, Baby, Drill!" Does Not Translate Into Effective National Energy Policy

Okay, record rig counts this year in the US have only produced 8% year on year production increases in natural gas, creating the possibility of lower natural gas prices for some time to come. Most of those wells were not even planned over two years ago. Many of them weren't even planned a year ago. Current estimates of total natural gas reserves in the US are up dramatically from only a year ago.

I think your premise is radically WRONG. It seems to me the facts are already there to support more drilling as both a way to increase domestic production, drive down prices for hydrocarbons (already happening for natural gas), and reduce the trade deficit. Increases in production this year certainly support that. You don't seem to understand that the period you are using to prove your data includes significant periods of oil prices near $12 a barrel and longer periods below $25. Next you are going to tell me that having sex does not lead to more babies.

I think you've done a good job of choosing your data in such a way that it matches your hypothesis. As an exploration geologist, I disagree with most of your "facts."